BSP in wait-and-see mode, to keep rates on hold

MANILA - The Philippine central bank is expected to keep key interest rates unchanged on Thursday while assessing future moves after some aggressive policy easing this year to support the pandemic-ravaged economy, a Reuters poll showed.

Twelve of 13 economists surveyed expect the Bangko Sentral ng Pilipinas (BSP) to leave the interest rate on its overnight reverse repurchase facility steady at a record-low 2.25 percent.

The lone dissenter predicted a 25 basis point reduction, which would be the fifth rate cut this year, after the BSP delivered a cumulative 175-bps reduction between February and June in an effort to revive the recession-hit economy.

The Philippines has the highest number of COVID-19 cases in Southeast Asia with 309,303 infections as of Tuesday. Of those, 5,448 resulted in deaths.

The recession probably lingered in the third quarter, with economic output expected to have contracted as surging infections prompted the government to reinstate strict lockdown measures in and around the capital Manila during August.

"Economic activity has remained subdued through most of the Q3 on still-high coronavirus infections, and fiscal support has been limited," said Chidu Narayanan, Asia economist at Standard Chartered Bank, who sees one more rate cut before year-end given the benign inflation.

Although BSP Governor Benjamin Diokno, in remarks earlier this month, said "the worst is behind us", some economists are not convinced.

The World Bank on Tuesday said the Philippine economy will likely contract by 6.9 percent this year, worse than the government's projected 5.5 percent decline seen last month.

"The recovery is lagging behind almost everywhere else in the region and we estimate that output is still around 10 percent below its pre-crisis level," said Alex Holmes, Asia economist at Capital Economics, who predicts a rate cut on Thursday.